Copper is often referred to as "Dr. Copper," the metal with a Ph.D. in economics. Yet most analysts don't view it as a critical metal. In this interview with The Critical Metals Report, Mickey Fulp, author of The Mercenary Geologist, gives his thoughts on why the experts are wrong and why copper should be considered a critical metal.
The Critical Metals Report: In the past, there has been some confusion about the term "critical metals." What do you consider to be critical metals and why?
Mickey Fulp: Critical metals are the major metals that are used globally in industrial applications and are essential for world economic health. They include iron, aluminum, copper, the various iron alloys, zinc, lead, tin and uranium. These are the real "critical metals," the ones that enable the world's economy to function.
TCMR: So your classification of a critical metal is based on the need and the supply and demand, is that correct?
MF: It's based on the fact that they have major tonnages mined and processed and are essential to industry and world economic health. Critical metals either trade on worldwide markets through spot, futures and options or they trade as bulk dry commodities, as iron ore does.
TCMR: One that most people don't classify as a critical metal is copper, but you do. What are the supply and demand fundamentals that you think make copper critical right now?
MF: Copper's always critical. In my opinion, some so-called experts have bastardized the idea of what critical metals actually input to our industrial society. Copper is absolutely one of the critical metals because it is so tied to the functioning world economy. For example, you can't transmit electricity without copper. Ask the people in New York and New Jersey right now if transmission of electricity is critical.
TCMR: As you're looking at the price of copper, what are the indicators that you watch for? Is it global gross domestic product? Is it the Shanghai Exchange warehouse inventory data, Baltic Dry Index, bulk dry materials shipping rates?
MF: All of the above, plus London Metal Exchange warehouse inventories, which are the largest in the world; Comex inventories, which are the third largest; the total world inventory, the Bulk Dry Index, which indicates shipping rates of commodities like copper; LME canceled warrants, which is inventoried copper designated for immediate delivery; monthly demand for the metal from China and world mined copper and refined copper production. At this juncture, China drives the world copper market, consuming somewhere between 35-40% of supply.
TCMR: What are you seeing in those indicators, particularly out of China?
MF: We've been in a holding pattern for copper and that's reflected in the range-bound prices seen for most of the last year, with prices between ~$3.30-3.90 per pound (lb). The same can be said of the world's economy – we can't say if it's especially healthy, or especially sick, or more likely, just has the "blahs."
This summer I wrote a "Mercenary Musing" called "Long-Term Fundamentals of the Copper Market"; I'm very bullish on the long-term copper outlook. "Short-Term Fundamentals of the Copper Market" followed about a month later. In it, I was equivocal on the direction of copper in the short term, and by the short term, I'm generally looking one to six months out. So now we're four months into that time frame and I still have the same view of the copper market. It's relatively healthy, but it is not robust.
TCMR: It's lingering at the bottom end of that range you talked about, at roughly $3.47/lb today. Do you see it staying there? Do you see anything changing in those indicators we talked about?
MF: Copper has dropped something on the order of $0.30/lb over the last month or so; the major reason is the "net longs" have come out of the market. Traders have been unwilling to risk speculative money in something that is obviously one of the most speculative markets on earth, and that's the futures and options market of copper. I don't think that what's happened over the last month in any of the metals is so much due to supply-demand fundamentals as it was geopolitical reasons connected with the U.S. elections.
TCMR: So you think it's the U.S. political situation, and not the China situation that's driving the recent decline?
MF: Absolutely. All financial markets were in holding patterns in the month leading up to the election.
TCMR: The International Wrought Copper Council (IWCC) recently predicted a 281,000-tonne surplus in 2013. Do you agree with that, and if not, what's your projection and why?
MF: I'm not a copper analyst per se, but I do understand copper supply and demand fundamentals. I don't make projections like that; I'll leave that for the analysts whose full-time work is analyzing a particular commodity. This supposed 281,000-tonne surplus, do you know how many days of world copper use that is?